MONEY – the true story of a made up thing – by JACOB GOLDSTEIN

This crisp little pick ‘n’ mix history of money by Jacob Goldstein  makes for an easy, entertaining read. As gripping as a money book can be it has the light touch of journalistic storytelling, veined by vivid vignettes and sorted around some refreshingly newish themes. Like China’s paper money phase or a chapter on John Law linking neatly to  gambling and probability. There is a fun chapter on the Euro and one on bitcoin making me feel I almost understand it now.  (Still don’t get why transactions have to be verified by a third party rather than some algorithm ?)

Scroll down for reviews and a taster from Goldstein’s chapter on the Euro


“There is much ground to cover as Money moves from traders in Sichuan to goldsmiths in London to investors in the Mississippi Territory. Each treatment is necessarily brief, and some readers may want more detail. But stacking up case studies like this means a bigger story—a recurring pattern—begins to appear … Money should be required reading for every financial regulator … I would have liked a chapter on underground and informal currencies. People living in the world’s toughest economies use all sorts of monies that are ‘made up’ … Money is great preparation for turbulent times: a vibrant and accessible grounding in how the evolution of cash—organic, random and social—really works.”

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“Goldstein, co-host of NPR’s podcast Planet Money, offers a brisk, brightly told history of money, ranging from lumps of metal used in ancient Greek city-states to invisible bitcoin traded online. Money, the author argues convincingly, is “a made-up thing, a shared fiction.” He continues, “a pretty good working definition of money is: it’s the thing you pay taxes with. In a world where different things are competing to be money—bills of exchange, silver and gold coins, notes from private banks—the thing the government accepts for taxes is going to win.” Besides tracing different forms that money has taken, Goldstein introduces a roster of quirky individuals who influenced monetary policy: among them, 17th-century Scotsman John Law, an inveterate gambler cognizant of the probability theory put forth by the “weirdo genius” Blaise Pascal and who powerfully shaped the French economy; Nicholas Biddle, president of America’s first central bank (at a time when the U.S. had 8,370 different kinds of paper money), who drew Andrew Jackson’s ire; Yale economist Irving Fisher, who redefined the dollar “as a fixed basket of stuff”; and Bruce Bent, inventor of the money-market fund. Goldstein deftly clarifies economic concepts, distinguishing, for example, the real economy (“the carpenter who builds your house”) from finance (“the banker who lends you money to buy the house”). Finance, he explains, “matches people who are willing to give up money now for the possibility of more money later with people who need money now and are willing to pay back more money later. Finance moves money around in time.” The author also explains the underpinnings of the 2008 financial crisis, the consequences of the adoption of the euro, and the possibilities of money in the future: the disappearance of cash, for one, and the end of banks.


“In the preface of Money: The True Story of a Made-Up Thing, Jacob Goldstein ’ recalls the impetus for his new book: a 2008 conversation with his aunt, a poet with an MBA. “Money is fiction,” she said when he asked where the trillions of dollars that disappeared in that year’s financial meltdown had gone. “It was never there in the first place.” Her words were a eureka moment for Goldstein; they not only gave birth to his journalistic niche (he is now cohost of NPR’s Planet Money), but they also formed his foundational beliefs on the topic. Far from existing on a separate, mathematical plane removed from human emotion, money — Goldstein insists — “is fundamentally, unalterably social.” It functions because a society collectively agrees to view its money as money, to trust in the reality of this “made-up thing.” Given this rather tenuous grounding, it’s no surprise that money has taken us on some wild rides over the centuries. In Money, Goldstein invites readers along for those adventures, serving as a first-rate tour guide throughout.

In early chapters, Goldstein cherry-picks his way through money’s history, sharing quirky facts (in the 1840s and ’50s, images of Santa Claus adorned some of the 8,370 varieties of paper currency in the USA) and fresh, informative origin stories. Among the latter is a riveting account of medieval China’s economic sophistication. Starting in 105 AD, when a eunuch invented a crude form of paper to keep records in a bustling bureaucracy, China progressed over the next nine-hundred-odd years to a wide use of paper currency. The advent of money in China sparked not just a commercial boom but a social revolution: once the government switched to collecting taxes in legal tender, a populace that had long been forced to weave and plant because taxes were paid in cloth and grain was now free to pursue other vocations. By 1200, Goldstein writes, “China was quite possibly the richest and certainly the most technologically advanced civilization in the world.”

Fast-forward to the mid-1400s, and the Chinese peasantry was back to paying taxes in cloth and grain. What happened? Theories vary, but Goldstein fingers the Hongwu emperor, who founded the three-hundred-year Ming dynasty in 1368 and who promoted a radical self-sufficiency based on China’s elimination of trade and reversion to an idealized agrarian past. That he succeeded is (ahem) an object lesson in the ephemerality of the “greatness” of any single nation. By the dawn of the twentieth century, the country was among the world’s least developed.

Goldstein’s discussion of the Great Depression is another eye-opener. He reveals how the relatively obscure economist Irving Fisher’s theories about deflation and the instability of the US dollar — problems stemming, in Fisher’s view, from the dollar’s value being yoked to the weight of gold — guided Franklin Roosevelt in the darkest days of 1933. After temporarily closing the country’s banks to stop rampant bank runs, FDR went on the radio and soothed the citizenry with an introductory lesson in banking. He then issued an executive order confiscating gold bullion and most gold coins possessed by any American and threw his support behind legislation that took the US off the gold standard. (The book’s elegant clarification of this concept is a gift to readers.) Even as his budget director decried “the end of Western civilization,” Roosevelt never wavered — and history has vindicated him. “In country after country, the economy started to improve after the government gave up on the gold standard,” notes Goldstein.

The book offers three different scenarios for money’s future, perhaps the most striking of which is “modern monetary theory” (MMT). As espoused by the economist Stephanie Kelton, MMT posits that a government that simply
creates more of its own money need not fear overspending (another liberating effect of chucking the gold standard). In the unlikely event that flooding the economy with new money creates hyperinflation, the antidote is equally simple: raise taxes to reduce the money supply. Kelton has attracted acolytes as diverse as Bernie Sanders and tax-averse tycoons.

Goldstein clearly thinks that MMT may be an idea whose time has come, arguing that our current methods of gathering and distributing tax revenues are “undemocratic.” In an environment where the words “taxes” and “deficits” are infinitely more fraught even than “money,” though, getting consensus on the long-term viability of Kelton’s approach might be the heaviest lift of all. But MMT may have gotten its first real trial run in March when Congress passed the $2 trillion CARES Act, giving the book a very timely and thought-provoking end.”                                           source : Lorraine Gennon – 12/2020 Review: Money’s history proves credibility is king By Anna Szymanski

…”This isn’t the first, or most exhaustive, history of currency. Historian Niall Ferguson’s 2008 “The Ascent of Money” was so popular it was made into a television documentary. But Goldstein’s is certainly one of the most entertaining. In under 300 pages, he covers over five millennia, including witty, incisive and sometimes surprising takes.

Goldstein begins by pushing back on a famous, but now widely criticized, theory about money’s origins: the double coincidence of wants. This is the notion that societies needed a medium of exchange because if a person had, say, a pig, but wanted bread, he might be hard-pressed to find a baker in want of a sow. But the author points out that people were fairly self-reliant for most of human history, living in small kin-based communities, in which exchange was more a matter of ritual than need…”…

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 excerpt from Goldstein’s chapter on the Euro :  A Brief History of the Euro (and Why the Dollar Works Better)

“The month after the fall of the Wall, Kohl went against the wishes of Germany’s central bank and many of its people and agreed to give up his country’s precious currency. Pöhl, the head of the Bundesbank, started negotiating terms of surrender for the deutschmark. He wanted the new currency to be controlled by a European central bank that was run by technocrats whose main job was fighting inflation (not stimulating the economy), and who were not answerable to politicians. Ideally, the bank’s headquarters would be in Germany, for safekeeping. Basically, he wanted to keep the deutschmark, but let other countries use it.
But even that was not enough. The value of money, Pöhl and his colleagues explained in 1990, would soon depend on the actions of every single country that shared the currency. For the system to work, all the countries needed to keep deficits and inflation low. But in the long run that wouldn’t be enough. A common currency would only work, the German central bankers wrote, if the countries agreed to a “comprehensive political union”—if they became more like a single country, a United States of Europe.
The Europeans agreed to meet the first part of Pöhl’s demands. The new currency would be controlled by an independent central bank charged with fighting inflation, and headquartered in Germany. Citizens would be able to cross borders freely in order to work. But there wouldn’t be a single, overarching European government that collected taxes and redistributed money across the eurozone.
The Europeans weren’t really ready to create a United States of Europe. So hundreds of millions of people were subjected to a wild experiment that no one in power admitted was a wild experiment: What happens when twelve countries, with vastly different economies, share a single kind of money.

In the twenty-first century, it has become wildly clear that one of the most important things central bankers do is make promises that people believe. Draghi’s “whatever it takes” promise was meaningful not because it was followed by some bold action; the statement itself was the bold action. The people who were betting against the euro by dumping Spanish and Italian bonds suddenly saw that they were betting against a man who had the power to print unlimited euros to buy up those bonds—and who now said he was willing to do so. By promising to save the euro, Draghi saved the euro. That’s the magic trick! Money is trust; in the modern world, where central banks have the ultimate power over money, money is trust in central bankers. Mario Draghi swooping in to save the euro is the happy ending. The unhappy ending is this: A new kind of money that was born out of some combination of hope (for a united Europe) and fear (of a united Germany) had taken away the sovereignty of democratic countries that were home to hundreds of millions of people. Their money, and therefore their fate, was now in the hands of foreign central bankers.

Goldstein, Jacob. Money: The True Story of a Made-Up Thing (pp. 169-185). Atlantic Books. Kindle Edition.


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